Circle, the issuer of the USDC stablecoin, is facing a criminal complaint in Wisconsin after prosecutors alleged the company refused to execute a warrant intended to recover roughly 381,000 USDC stolen from a scam victim. The case tests how quickly authorities can move to recover cryptocurrency once a court orders funds frozen.

USDC belongs to a class of dollar-tracking tokens known as stablecoins, and its issuer holds centralized control over the token — the very power that made the court-ordered freeze possible and that now puts Circle's technical abilities and legal duties in question.

The dispute in Walworth County began around May of last year, according to court records. A resident identified in filings as "Victim #1" received an unsolicited text message from a woman calling herself Lenora, who posed as a romantic partner and touted her investment expertise.

Lenora directed the man to convert part of his savings into USDC and deposit the tokens on a bogus investment platform, the records say. A county court ordered Circle to freeze the approximately 381000 tokens last August. Circle complied and placed the assets in a private wallet.

Circle Rebuffed Efforts to Return Frozen USDC

In early December, a Wisconsin judge signed a warrant directing Circle to "facilitate the seizure" of the frozen USDC. Prosecutors say the order required the company to invalidate the tokens in the suspect wallet and transfer an equal amount of newly issued USDC to a sheriff's office wallet.

Circle said it could not invalidate and reissue the tokens. The company also argued that the court lacked jurisdiction and that prosecutors had not engaged with its effort to find another way to compensate the victim. In a filing last week, Circle called the complaint meritless and asked that it be dismissed.

Though a single misdemeanor count, the charge forces a court to weigh what an issuer must do when a seizure warrant demands more than the company says its systems allow.

Prosecutors filed a single misdemeanor count, alleging that Circle intentionally disobeyed or obstructed the court. Karen Greenway, a former FBI agent and financial crime expert, told the International Consortium of Investigative Journalists (ICIJ) that a state criminal charge against a major financial firm is highly unusual.

Thomas Binger, the Wisconsin prosecutor, said cryptocurrency transactions make it difficult to identify perpetrators and recover funds. "The tools that are at our disposal are not keeping up with the tools the criminals are using," he said.

Fast Transfers Complicate Recovery

New York prosecutors described a related challenge in a January letter to U.S. senators, saying Circle had denied requests to freeze USDC without a court order. Transactions can settle in seconds, while officials may need longer to obtain judicial approval. A freeze can prevent suspected criminals from moving tokens or converting them into cash.

Circle has said it freezes tokens only when compelled through a "lawful process," a policy it says protects users from arbitrary or politically motivated interference. That position differs from Tether's: Tether told ICIJ it grants some law enforcement requests without a court order and has helped freeze about $4.7 billion in assets connected to illicit activity. Because each issuer sets its own freeze rules, a victim's route to recovering stolen funds can depend on which stablecoin the fraudster demanded.

Milwaukee County detective Scott Simons said he had seen more than a dozen cases nationwide in which Circle declined a request or received a court order too late to stop transfers. New York prosecutors also alleged that Circle had not honored orders to return stolen funds, and their letter noted that frozen assets can generate investment interest for Circle.

In a footnote, Circle said it had reached a general agreement with federal prosecutors on a mechanism to compensate victims using certain permanently frozen funds, with equal-value tokens apparently reissued. The company did not say whether that method could apply in Wisconsin or whether the arrangement was binding.

Crypto experts cited by ICIJ questioned whether Circle could enable token "burning," or destruction, followed by reissuance. Tether told ICIJ it had reissued $1.1 billion worth of tokens obtained illicitly. Circle did not answer whether it could update its software to permit such an approach.

The Wisconsin complaint now places Circle's ability and obligation to return frozen funds before a court. According to the ICIJ investigation, prosecutors continue to seek a way to return the frozen Wisconsin funds. The court's handling of Circle's motion to dismiss, and whether the federal compensation framework ever extends to Walworth County, are the case's immediate next checkpoints.